Committee for the Abolition of Illegitimate Debt

Since the World Bank came into existence in 1946, each year without exception, it has produced positive net results from its activities. In 1963, the World Bank was faced with such huge profits that the new president, George Woods, who only a short time before had been President of the First Boston Bank, proposed that the Bank’s Managing Committee should distribute dividends to its shareholders like any self-respecting bank [1] The idea was abandoned as the managers felt that distributing dividends would give indebted developing countries a poor impression of the Bank. It was decided to transfer the profits to the Bank’s reserves. In 2005, the Bank’s total reserves came to 38.5 billion dollars.

Since 1985, the revenues [2] of the Bank’s main branch, the IBRD (International Bank for Reconstruction and Development), has exceeded a billion dollars every year. Exceptional results were registered for 1992 (1709 million dollars of revenue), in 2000 (1991 million) and above all for 2003 (3021 million).

Graph 1 shows the evolution of operations revenue from 1981 to 2005:

How does the World Bank make its profits?

The IBRD makes its profits through repayments received from indebted countries, mainly from a few big middle-income countries [3]. Indeed, the poorest countries cannot afford to borrow from the IBRD – they borrow from the IDA (International Development Agency).

The IBRD makes its profits on the difference between what the capital it borrows on the financial markets costs it, on the one hand, and what the developing countries repay it, (amortization of borrowed capital + interest) on the other. Even then, the IBRD would have to ensure that the developing countries do actually repay it, and so it does: the IBRD manages to get repaid regularly. Of course there are a few exceptions and some countries are bad payers – as was the case of Mobutu’s Zaire, for example.

The following table will give an idea of how seriously developing countries take their obligation to repay the IBRD. The developing countries can be seen to repay far more than the IBRD lends them. Developing countries’ net transfer on debt has been negative since 1987. It is also apparent that despite the enormous amounts repaid, the total debt still owed to the IBRD has greatly increased.

Source: World Bank, Global Development Finance, 2005

The next graph shows the evolution of stock and net transfer on debt.

The World Bank claims that the profits it makes from the IBRD are not enough to enable it to balance its accounts, because of a deficit in the IDA’s, which makes low-interest loans to the poorest countries. The following graph shows that if you add together IBRD and IDA loans, on the one hand, and subtract the total of all repayments made by all the developing countries (including the poorest) to the IBRD and IDA, the Bank has been making a comfortable profit since 1990. So, from 1991 to 1996, net transfer has been systematically negative. As it has since 2000.

Total debt transfers LT (World Bank) Total debt stock LT (World Bank)

From 1984, the World Bank decided to diversify where it placed its profits. Other than increasing its reserves, it used it in homeopathic doses for certain UN programmes. Thus in April 1984, the World Bank donated two million dollars to the World Food Programme. This is referred to in the minutes of the World Bank’s Managing Committee meeting as “a good and astute gesture” [4].

Later, from 1985, the World Bank allocated part of its profits to special funds, usually trust funds, for limited purposes. These could be anything from the Bank’s contribution to reducing poor countries’ debt to aid for certain countries affected by the tsunami in December 2004, or donations to the Multilateral Investment Guarantee Agency, the fifth branch of the World Bank [5].

Generally, this use of the funds is criticized by the middle-income countries since it is through them that the World Bank makes its profits. These countries denounce the fact that the rich countries use part of the profits made on their backs for noble gestures towards the poorest countries. They would prefer the Bank to charge them lower interest rates.

Note that the Bank is very active on the derivatives market, which feeds international speculation. In 2004, the Bank registered a shortfall of 4 billion dollars due to operations on derivatives in currency exchange. Although its usual activities had generated profits comparable to those made in previous years, this made a temporary impact on its net revenue [6]. However all this is leading us to another of the World Bank’s activities, which, however questionable, is beyond the scope of this chapter.